International Journal of Managerial Finance
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Published By Emerald (Mcb Up )

1743-9132
Updated Friday, 15 October 2021

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yoshie Saito

PurposeThe survival rate of newly listed firms is low, and there is evidence of a surge of poorly performing new listed firms leading up to the crash of the dot.com bubble. The author investigates this phenomenon and analyzes investors' ability to understand the quality of accounting information and to adjust their expectations.Design/methodology/approachThe author employs the dividend discount model in conjunction with clean surplus accounting discussed by Ohlson (1995) to compare the value relevance of earnings and research and development (R&D) expenditures for short and longer listed National Association of Security Dealer Automated Quotations (NASDAQ) firms between 1980 and 2014. The author also uses univariate tests and logistic regression to analyze both recently listed and short-listed firms. In this analysis, the author compares the differences in investors' expectations for the first five years for both types of firms.FindingsThe author provides convincing evidence that markets clearly placed lower valuation weights on accounting earnings and R&D expenditures for short-listed firms on NASDAQ. Market participants originally had high expectations for these ventures. But, they gradually understood the lower quality of accounting information and adjusted their expectations downward.Originality/valueThe author’s results show that optimistic expectations along with easy equity financing created a surge of new listings. My analysis of the interplay between the quality of accounting information and investors' expectations indicates a negative spillover effect where investors are overoptimistic about firms that rode on waves of new listings backed by liberal financing. The author shows that analysis of Tobin's Q and negative earnings can separate ill-prepared from longer-listed firms.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Omer Unsal

PurposeIn this paper, the author utilizes a unique hand-collected dataset of workplace lawsuits, violations and allegations to test the relation between employee mistreatment and information asymmetry.Design/methodology/approachThe author tests the impact of employee treatment on firms' information environment by utilizing the S&P 1500 firms of 17,663 firm-year observations, which include 2,992 unique firms and 5,987 unique CEOs between 2000 and 2016. These methods include panel fixed effects, as well as alternative measures of information asymmetry, event study and matched samples for further robustness tests.FindingsThe author finds that employee disputes exacerbate the information flow between insiders and outsiders. Further, the author reports that case characteristics, such as case outcome and case duration, aggravate that problem. The author documents that the positive relationship between employee mistreatment and information asymmetry is stronger for small firms and firms with smaller market power, as well as firms with a high level of equity risk.Originality/valueThis study is the first to investigate how employee relations influence a firm's information asymmetry. The author aims to contribute to the literature by studying (1) the relation between information asymmetry and employee mistreatment, (2) how firm characteristics affect the path from employee disputes to information asymmetry and (3) the influence of various other types of evidence of employee mistreatment beyond litigation on the information environment.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Avinash Ghalke ◽  
Shripad Kulkarni

PurposeWhen a fund manager leaves, the investment strategy of the fund changes or remains the same. The departing fund manager's resignation is either forced or voluntary. The study investigates the relationship between the portfolio manager's transition and the fund's investment strategy and how the change affects the mutual fund returns in the subsequent period.Design/methodology/approachThe authors examine 148 fund manager changes in India between April 2005–March 2018 using three performance measures: abnormal return (fund return minus benchmark return), Jensen's alpha and Carhart four-factor alpha. The analysis includes an event study methodology, followed by a two-step Fama–MacBeth regression approach.FindingsContrary to the previous studies conducted in the developed markets, the authors find that fund performance improves irrespective of whether the fund manager change is forced or voluntary. The outperformance after the fund manager's exit is significant for funds belonging to the larger fund families.Originality/valueIn the context of investment management, the authors provide a conceptual framework to understand the effect of fund manager exit on mutual fund performance. The authors substantiate their arguments with empirical evidence. To the best of the authors' understanding, this is the first research to examine the effect of changing mutual fund managers in an emerging market setting.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hoa Luong ◽  
Abeyratna Gunasekarage ◽  
Syed Shams

PurposeThis paper investigates the influence of tournament incentives, measured by Chief Executive Officer (CEO) pay slice (CPS), on the acquisition decisions of Australian firms.Design/methodology/approachThis study applies ordinary least squares regression analyses to a sample of 1,429 acquisition observations announced by 986 unique Australian firms spanning the 2001–2015 period. Event study methodology was employed to capture the market reaction to acquisition announcements. Multinomial logit models, a two-stage least squares instrumental variable (IV) approach and propensity score matching (PSM) technique were performed for robustness and endogeneity correction purposes.FindingsThe results suggest that CPS has a positive and significant relationship with the announcement period abnormal return realised by acquirers, implying that executives are motivated to exert best efforts and support the CEO in making value-creating acquisitions. Further analyses reveal that management teams of high CPS firms demonstrate efficiencies in executing acquisitions. The positive relationship between the CPS and abnormal return is more pronounced in acquisitions of private targets, domestic targets and bidders with high-quality CEOs. These acquisitions make a significant contribution to the long-run performance of the firm, which provides support for the effort inducement hypothesis.Practical implicationsThe study's empirical evidence implies that the strong governance environment in Australia and a highly monitored acquisition market and compensation contracts motivates executives to exert their efforts to make value-enhancing acquisitions.Originality/valueThis paper appears to be the first investigation that makes a link between CPS in different components (i.e. short-term, long-term and total pay) as proxy for tournament incentives and the outcomes of both public and non-public acquisitions in the Australian setting.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marshall A. Geiger ◽  
Rajib Hasan ◽  
Abdullah Kumas ◽  
Joyce van der Laan Smith

PurposeThis study explores the association between individual investor information demand and two measures of market uncertainty – aggregate market uncertainty and disaggregate industry-specific market uncertainty. It extends the literature by being the first to empirically examine investor information demand and disaggregate market uncertainty.Design/methodology/approachThis paper constructs a measure of information search by using the Google Search Volume Index and computes measures of aggregate and disaggregate market uncertainty using institutional investors' trading data from Ancerno Ltd. The relation between market uncertainty, as measured by trading disagreements among institutional investors, and information search is analyzed using an OLS (Ordinary Least Squares) regression model.FindingsThis paper finds that individual investor information demand is significantly and positively correlated with aggregate market uncertainty but not associated with disaggregated industry uncertainty. The findings suggest that individual investors may not fully incorporate all relevant uncertainty information and that ambiguity-related market pricing anomalies may be more associated with disaggregate market uncertainty.Research limitations/implicationsThis study presents an examination of aggregate and disaggregate measures of market uncertainty and individual investor demand for information, shedding light on the efficiency of the market in incorporating information. A limitation of our study is that our data for market uncertainty is based on investor trading disagreement from Ancerno, Ltd. which is only available till 2011. However, we believe the implications are generalizable to the current time period.Practical implicationsThis study provides the first concurrent empirical assessment of investor information search and aggregate and disaggregate market uncertainty. Prior research has separately examined information demand in these two types of market uncertainty. Thus, this study provides information to investors regarding the importance of assessing disaggregate component measures of the market.Originality/valueThis paper is the first to empirically examine investor information search and disaggregate market uncertainty. It also employs a unique data set and method to determine disaggregate, and aggregate, market uncertainty.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhe Li ◽  
Emre Unlu ◽  
Julie Wu

PurposeStudies on corporate boards examine how social ties between the CEO and independent board members affect the effectiveness of board monitoring. Much evidence suggests that social connections between the CEO and independent directors are associated with inadequate monitoring and lower firm value (Hwang and Kim, 2009; Fracassi and Tate, 2012). In this study, the authors note that social connections of the independent directors are of different nature and thus should not be treated as a homogeneous group; that is, the nature of connections among directors can be quite different from that between the CEO and directors, which is the primary focus of previous studies.Design/methodology/approachThe authors classify independent directors into four mutually exclusive groups based on their social connections to the CEO and other independent board members and examine what role each type of connection plays in corporate monitoring using panel data and cross-sectional fixed effect regressions.FindingsThe authors find that Only_CEO%, the proportion of independent directors who are connected only to the CEO, is negatively associated with monitoring intensity. Specifically, firms with higher Only_CEO% have larger CEO compensation, lower likelihood of dismissing the CEO, more co-opted board and worse firm performance. In contrast, No_CEO_Ind%, the proportion of independent directors who have no connection to either the CEO or other independent directors is associated with more effective monitoring. These findings suggest that independent directors with different degrees of social connections exhibit different monitoring qualities.Practical implicationsWhen more independent directors, who are connected exclusively to the CEO, are on the board, they consistently deliver low monitoring quality. However, when more independent directors with no connections to either the CEO or any independent directors are on the board, they enhance monitoring quality. These findings can be used to construct board structures with more effective monitoring ability.Originality/valueThis paper extends the literature on social networks in corporate finance. The authors show that independent directors with exclusive connections to other independent directors do not have a significant effect on board monitoring, but those truly independent directors are associated with better monitoring quality. These findings suggest that different types of social connections of independent directors play a different role in board monitoring and help extend our understanding of the function of social connections of independent directors in corporate governance.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hamish D. Anderson ◽  
Jing Liao ◽  
Shuai Yue

PurposeEmploying the anti-corruption campaign as an exogenous political shock, this paper examines how political intervention shapes the impact of financial expert CEOs on firm investment decisions.Design/methodology/approachThis paper uses a sample of 2,808 Chinese firms listed in the Shanghai and Shenzhen Stock Exchanges from 2003 to 2016. Panel data is used for conducting the analysis controlling for firm, industry, and year fixed effects.FindingsThe authors found that CEOs with financial expertise are sensitive to political intervention when making investment decisions. First, financial expert CEOs spend more on R&D expenditure in private-owned companies and they are associated with less R&D expenditure in state-owned enterprises (SOEs). Second, financial expert CEOs are associated with higher investment expenditure in general, but they become less likely to invest more in the post-anti-corruption period. The reduction in investment expenditure due to the anti-corruption campaign is more pronounced in SOEs than in private-owned companies. Third, the anti-corruption campaign promotes R&D investment in general, but in SOEs, expert CEOs tend to be less likely to invest more on R&D after the anti-corruption shock.Originality/valueThis paper enriches the growing literature on the impact of political intervention and the role of the anti-corruption campaign on corporate behaviour.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Xu Niu

PurposeIn this paper, the author attempts to answer an important question upon founder-CEOs' exiting: How do they sell their remaining ownership shares? The literature has largely been silent on this question, and therefore is missing an important piece of the puzzle on the final stage of the founding entrepreneurs' involvement in their companies.Design/methodology/approachThe author uses both theoretical models and empirical methods to examine how founder-CEOs sell their remaining ownership shares.FindingsThe author finds that founder-CEOs of high-growth firms and those with high managerial ability are more likely to sell remaining ownership shares gradually rather than suddenly. Moreover, if either the growth or the managerial ability is high, founder-CEOs managing firms with high volatility tend to sell gradually.Originality/valueThis paper provides insights into the final stage of founding entrepreneurs' involvement in companies. The methodology of pattern recognition also helps investors and regulators in tracking and monitoring stock trading of founders and other company insiders.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Snow Han

PurposeThis study aims to provide new explanation of the new issue puzzle.Design/methodology/approachThis study uses market implied cost of capital (ICC), rather than ex post realized returns, as proxy for ex ante expected returns, and sheds new light on the question why initial public offering (IPO) firms underperform the market within a 3–5 years period after the offerings.FindingsUsing ICC, the author finds that the market expects to earn higher risk premium for new listing firms than similar firms, which is contradictory to the documented new issue puzzle. The higher expected returns come from higher idiosyncratic volatility for newly listed firms, which are young and have more growth opportunities. The author also reports that investors are negatively surprised by lower-than-expected performances of newly listed firms.Originality/valueThe author’s results provide new empirical evidence that the new issue puzzle does not exist. Previous results observed IPO firms' under-performance is attributable to that ex post realized returns are a noisy proxy for ex ante expected returns, especially for newly listed firms with limited information.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jinglin Jiang ◽  
Weiwei Wang

PurposeThis paper investigates individual investors' responses to stock underpricing and how their trading decisions are affected by analysts' forecasts and recommendations.Design/methodology/approachThis empirical study uses mutual fund fire sales as an exogenous source that causes stock underpricing and analysts' forecasts and recommendations as price-correcting information. The study further uses regression analysis to examine individual investors' responses to fire sales and how their responses vary with price-correcting information.FindingsThe authors first show that individual investors respond to mutual fund fire sales by significantly decreasing net buys, and this effect appears to be prolonged. Next, the authors find that the decrease of net buys diminishes following analysts' price-correcting earnings forecast revisions and stock recommendation changes. Hence, the authors suggest that individual investors are not “wise” enough to recognize flow-driven underpricing; however, this response is weakened by analysts' price-correcting information.Originality/valueThere is an ongoing debate in the literature about whether individual investors should be portrayed as unsophisticated traders or informed traders who can predict future returns. The authors study a unique information event and provide new evidence related to both perspectives. Overall, our evidence suggests that the “unsophisticated traders” perspective is predominant, whereas a better information environment significantly reduces individual investors' information disadvantage. This finding could be of interest to both academic researchers and regulators.


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